Money Market Liquidity Rises as Banks Boost SDF Placement
The financial system liquidity increased as deposit money banks (DMBs) parked funds into the Central Bank of Nigeria (CBN) Standing Deposit Facility (SDF) window last week.
Market data signals that liquidity conditions in the banking system strengthened significantly as the market continues to weigh adjustments to the monetary policy rate.
An investment firm, Cowry Asset Limited, reported that net system liquidity edged higher to N5.98 trillion at the close of last week’s trading session, up from N2.86 trillion the previous week.
The substantial increase was driven by over N7 trillion placed at the Standing Deposit Facility (SDF) alongside approximately N2.3 trillion in OMO repayments, reinforcing the system’s already ample liquidity position, according to Cowry Asset Limited.
Money market rates responded sharply to the combination of abundant liquidity and the recent Central Bank’s policy recalibration, investment firm Cowry Asset Limited said.
Market analysts noted that funding rates eased within the corridor set by Tuesday’s 350bps cut in the monetary policy rate to 23%, and the Nigerian Overnight Financing Rate held at the 20.00% floor.
The overnight rate declined by 147 basis points week-on-week to 20.77%, while the funding rate fell by 160 basis points to 20.40%, down from 22.00%.
The decline extended across the Nigerian Interbank Offered Rate (NIBOR) curve, with the overnight, 1-month, 3-month, and 6-month rates falling by 205 bps, 171 bps, 135 bps, and 118 bps, respectively.
The broad-based compression reflects both improved liquidity conditions and the market’s adjustment to the lower policy-rate environment.
“Expect overnight rates to stay close to the 20.00% floor while surplus cash holds above ₦5 trillion. Heavier OMO sales would push them back up”, AIICO Capital Limited said.
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